The U.S. Commercial Relationship with Egypt and the Middle East & North Africa: Issues of Importance

Submission of the U.S.-Egypt Business Council and the U.S. Chamber of Commerce Office of the U.S. Trade Representative – Federal Register Notice

2011 Trade and Investment Partnership for the Middle East & North Africa

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Statement of the U.S.-Egypt Business Council U.S. Chamber of Commerce

 

On:  Request for Comments on the 2011 Trade and Investment Partnership for the Middle East and North Africa To:  Office of the United States Trade Representative Federal Register Notice By:  U.S.-Egypt Business Council and the  U.S. Chamber of Commerce Date:  October 14, 2011

 

The U.S. Chamber’s mission is to advance human progress through an economic,

political and social system based on individual freedom, incentive, initiative, opportunity and responsibility

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The U.S.-Egypt Business Council is the leading advocacy organization in the United States representing America’s top companies doing business with Egypt. The council is comprised of senior executives of U.S. companies from every business sector that are major investors in Egypt. The goal of the council is to promote the bilateral commercial relationship between the United States and Egypt, and to promote high-level economic and political relationships in both countries.

The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations. The Middle East and North Africa Affairs Department of the U.S. Chamber is home to two bilateral business councils and two initiatives, including the U.S.-Bahrain Business Council, the U.S.-Egypt Business Council, U.S.-Iraq Business Initiative and the U.S.-Israel Business Initiative. The department’s goal is to promote the commercial relationship between the United States and the Middle East and to promote high-level economic and political relationships in targeted countries. The Chamber’s international reach is substantial, built on the belief that global interdependence provides an opportunity, not a threat. Positions on national issues are developed by a cross-section of Chamber members serving on committees, subcommittees, and task forces. More than 1,000 business leaders participate in this process.

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INTRODUCTION

The U.S.-Egypt Business Council (USEBC) and the U.S. Chamber of Commerce thank the Office of the United States Trade Representative (USTR) for initiating research and dialogue on the important topic of trade and investment integration within the Middle East and North Africa (MENA) region. USEBC member companies have significantly contributed to this submission, as have the U.S. Chamber’s Global Intellectual Property Center (GIPC), the Chamber’s Global Regulatory Cooperation Project (GRCP), and the Chamber’s Center for International Private Enterprise (CIPE).

Member companies of the USEBC have significant investments and operations

in Egypt that extend across the region. The council believes that a regional strategy begins by the United States deepening its economic relationship with Egypt as the centerpiece of the strategy and building outward from this foundation to connect countries across North Africa, the Levant, and the Gulf countries. This paper outlines why Egypt should be at the center of the United States’ regional trade and investment strategy. Next, it discusses issues that the United States should pursue to strengthen that relationship with significant input from the USEBC member companies. Finally, it connects Egypt to a proposed regional MENA approach to increasing trade and investment flows between Egypt and neighboring countries. EGYPT AS THE CENTERPIECE

The USEBC believes that the United States should pursue a commercial relationship with the Middle East and North Africa (MENA) region where Egypt is the centerpiece. Egypt is a strategic country in the MENA region for the United States on a political and economic scale. Politically, the United States maintains strong defense cooperation with Egypt. Egypt continues to play a leading role in regional dynamics and has been a strong ally and lynchpin for preserving peace in this region. The United States has a vested interest in helping Egypt’s economy continue to grow and prosper during its time of political transition. Economically, it has a population of 80 million inhabitants, is arguably the most diversified economy,1 and is geographically a strategic trading hub through the Suez Canal – factors that position it well to serve as a trade and investment platform that will spur growth in the region.

Apart from the vast oil and gas wealth that the MENA region enjoys, Egypt has perhaps the most potential of MENA countries to further develop and diversify its domestic economy in the short term, leading the way to broader development across the region. Many leading economists have recognized Egypt’s progress. Egypt                                                                                                                          1 Excluding Israel and Turkey.

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has been named a top economic reformer for four out of the last seven years by the World Bank’s Doing Business in Egypt Report. The Economist Intelligence Unit has identified Egypt as an especially promising emerging market, along with Colombia, Indonesia, Vietnam, Turkey and South Africa, in the CIVETS group. Prior to the 25th of January revolution, emerging market investment analysts were predicting that Egypt could be expected to mirror the performance of the BRIC powerhouses, becoming a key contributor to the next period of sustained global economic growth. Egypt has also been selected by Goldman Sachs as part of its Next -11, which consists of countries that have large and growing populations and the potential to greatly impact the global economy.2 In addition, many U.S. companies continue to see Egypt, located at the intersection of the Middle East, Europe, and Africa trade routes, as strategically important to their global strategy.

In the last decade, Egypt has made many positive reforms, which we encourage

the government to continue to implement and enforce. The council applauds Egypt’s economic reform process and we believe that the reforms lay the foundation for future trade. The council believes that the United States should reengage with the Government of Egypt with the goal of initiating U.S.-Egypt Free Trade Agreement (FTA) negotiations with the newly elected government at an appropriate time. The council recognizes that an immediate FTA may not be possible. However, the council encourages the United States and the Egyptian governments to continue their bilateral economic dialogue under a formalized process, working to improve the industry issues detailed in this paper, with the articulated goal of re-launching the FTA negotiation process.

As U.S. companies have invested and are actively doing business in the challenging environment brought about by the Arab Spring, council members have reiterated their support for Egypt and some have announced new investments in 2011. Despite this year’s events, the United States and Egypt continue to share a healthy, mutually beneficial, bilateral trade relationship. An increasingly important economic partner of the United States, Egypt has the potential to significantly contribute to job creation in the United States and in the MENA region with expanded trade relations under a free trade agreement.

The Egyptian people deserve the strongest support possible and incentives to

continue the trajectory toward economic growth and prosperity. In the short-run Egyptians must navigate difficulties created by the temporary slowdown of the economy. The future prospect of an FTA with the United States would help define

                                                                                                                         2 The N-11 countries are Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, and Vietnam.

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concrete goals for the new government as it continues to modernize, open its market, and develop its vision of Egypt’s role in the twenty-first century global economy.

The council strongly supports the Enterprise Fund for Egypt and the

announcement that the Overseas Private Investment Corporation (OPIC) will provide up to $1 billion in financing to stimulate private sector investments in Egypt. We believe the success of Egypt’s political transition can be positively influenced by concrete economic building blocks and the articulation of an economic roadmap. The potential for Egypt to slip back into economic stagnation and eschew economic reforms is very real and U.S. policy should offer concrete opportunities along an alternative path.

A U.S.-Egypt FTA is in the economic interests of the United States and could result in many beneficial reforms. The council applauds the president’s call last year to double U.S. exports in five years. Achieving that goal would create thousands of new U.S. jobs as well as create jobs across the region. It is an enormous challenge and will require American businesses to aggressively expand their markets overseas. As American companies that have operated in Egypt for decades, the council believes that Egypt has huge economic potential and the country’s demand for U.S. goods and services will contribute to doubling U.S. exports. FINDINGS FROM COMPANIES As requested in the USTR federal register notice, USEBC member companies have provided their input in the following areas:

1. Technical barriers to trade 2. Services 3. Trade facilitation 4. Investment 5. Intellectual property 6. Transparency 7. Standards alignment

TECHNICAL BARRIERS TO TRADE

In the WTO, under the Technical Barriers to Trade Agreement (TBT Agreement), Egypt has committed to ensure that technical regulations and standards-related measures promote legitimate objectives (such as health and safety), are created and implemented in a transparent manner, and do not create unnecessary obstacles to trade. As the election process proceeds and the new government is established, the

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council recommends that the Office of the U.S. Trade Representative (USTR) and the United States government at large advocate Egypt implement open and transparent procedures for developing technical regulations. Transparent processes ensure that domestic and foreign stakeholders view the resulting regulations as fair and legitimate. Eliminating the multiplicity of redundant regulations and regulatory agencies is a particular priority for U.S. businesses.

In accordance with the TBT Agreement, the council recommends that Egypt

avoid imposing technical regulations and ensure that all regulatory changes meet a legitimate objective in a manner no more restrictive to trade than necessary. Further, the council recommends the United States advocate for Egypt to utilize voluntary, private sector-based and internationally accepted standards set by a consensus. These actions will lead to a level playing field for American companies. The council further recommends that USTR advocate Egypt make all proposed regulations and standards publically available within an adequate timeframe to allow interested stakeholder comments and allow time for consideration of those comments before finalizing any changes, which will also increase overall transparency. SERVICES

Egypt continues to levy trade barriers in many of the services sectors, including banking, telecommunications, and express delivery services. That said, in the insurance sector, foreign firms can now own 100 percent of an Egyptian insurance firm. The Egyptian Insurance Supervisory Authority has also become more autonomous in recent years, and has made progress in eliminating bureaucratic burdens and regulations. However, all companies including the insurance sector must register with the regulatory authority if foreign ownership exceeds 10 percent. In the banking sector, a foreign bank has not been granted the right to establish a new bank in Egypt during the last 20 years.3 Nevertheless, the government has divested and privatized many of its joint venture banks and Egypt is to be commended for these reforms. The telecommunications industry continues to be dominated by the government-owned Telecom Egypt.

For maritime services, customs clearances procedures at ports are fraught with

unnecessary red tape resulting in costly delays. The council urges the United States to further push for an Open Skies agreement for charter flights with foreign air carriers. The council also advocates for further reform in the express delivery sector to eliminate regulatory oversight by the Egyptian National Postal Organization. The Egyptian government continues to impose limits on foreign equity in construction                                                                                                                          3 According to the U.S. Foreign Commercial Service report, Doing Business in Egypt: 2010 Country Commercial Guide for U.S. Companies.

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and transport services, employment of foreign nationals, land rights for foreigners and foreign companies. Several sectors continue to be dominated by informal monopolies under the control of state-owned companies, such as aviation and telecommunications. The council recommends that USTR renew a dialogue with the Egyptian government to discuss trade barriers in the services sector.

TRADE FACILITATION

Trade facilitation is increasingly seen as a top priority. Often referred to as the "plumbing" of international trade, trade facilitation consists of reforms to make the movement of merchandise from one country to another faster, cheaper and more reliable. As international trade grows relative to GDP, the efficiency of trade logistics becomes more important. Rising competition and falling tariffs in markets around the globe have laid bare the cost of inefficient customs and ports. In fact, studies have shown that inefficient trade logistics in many developing countries add anywhere from 5% to 25% to the cost of trade.

According to a recent World Bank report entitled Connecting to Compete: Trade

Logistics in the Global Economy, trade facilitation runs the gamut from, "customs procedures, logistics costs, and infrastructure quality to the ability to track and trace shipments, timeliness in reaching destination, and the competence of the domestic logistics industry." While the trade facilitation agenda has traditionally focused on customs and infrastructure, Connecting to Compete suggests that liberalizing services markets is equally important. High-quality, competitive private services such as trucking, warehousing, and customs brokerage make supply chains more robust and reliable, which in turn contributes to greater investment and more export opportunities.

Specific reforms that major trading companies have identified include greater

use of information technologies and electronic delivery of customs information, alignment of data requirements for export and import declarations, reviewing the bond guarantee requirements for expedited release of goods from customs and swift clearance for low-risk imports.

INVESTMENT Egypt and the United States share a Bilateral Investment Treaty (BIT) and the Egyptian government has made foreign investment a priority of its economic reform in the last seven years. Egypt established the General Authority for Investment (GAFI) as the ‘one-stop-shop’ for investors and new businesses, which has provided foreign investors a focal point for information and projects. We commend the efforts

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of GAFI in working to help facilitate foreign investment into Egypt. The council recommends that the United States call for the further reduction of requirements for businesses to open an office and/or facility and to operate. In terms of land rights, the Egyptian government continues to restrict foreign ownership of land in certain circumstances, such as agricultural land and property in designated districts. On public tenders, the Egyptian government should give preference to the best price and value through a competitive process. The council recommends that USTR consider to updating the BIT. Additional informal barriers to trade exist despite the efforts made by the Egyptian government to address these challenges. For example, a foreign company may not act as an importer and must operate through a local partner. The Central Bank of Egypt continues to require foreign banks to purchase or enter a joint venture with a local bank. By further liberalizing the banking sector, Egypt will attract foreign capital and financial resources for growth.

INTELLECTUAL PROPERTY

Since passing its revised intellectual property rights law in 2002, Egypt has made important strides in improving its legal framework for intellectual property rights (IPR) protection as well as its enforcement capacity. Law 82/2002 reflects the major provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement and was supported by the U.S. government and the U.S. private sector.

Despite these efforts, Egypt currently lags behind many countries in the Middle East and North Africa region in terms of IPR protection and Egypt still remains on the U.S. Trade Representative’s Special 301 Watch List for countries in which the United States has elevated concerns about IPR protection. The World Economic Forum’s Global Competitiveness Report 2010/2011 ranks Egypt 67th in terms of protection of intellectual property, down from 58th the year prior.

USTR kept Egypt on the Special 301 Watch List report released in 2011. In 2008,

USTR dropped Egypt down from the priority watch list to the watch list for improvements it had made for intellectual property protection. Again in 2010, Egypt made advancements by acceding to numerous international treaties on intellectual property. Notably, Egypt founded the National Observatory for Industry Products, which inspects goods for patent and trademark infringement. Egypt also launched public awareness campaigns on counterfeit pharmaceuticals. The council applauds these efforts. Nevertheless, the USTR report cites several impediments to IP enforcement as Egypt’s main obstacle, noting that judges require further training on processing IPR cases and greater protection and enforcement for pharmaceuticals

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patents. Additional capacity building is required to scale up the Egyptian Customs Authority, the Ministry of Culture, and the Ministry of Health. Intellectual property protection and enforcement affects multiple sectors across the Egyptian economy, namely in the pharmaceutical, consumer, packaged and luxury goods, and information technology sectors. Pharmaceutical Industry

The Egyptian government has significantly accelerated the registration process for patents and the backlog of patent applications has been modernized. However, Egyptian law continues to define the data protection period as beginning at the time the market authorization application is submitted. The council strongly encourages the Egyptian Government to grant data protection from the date of market authorization, as in most other countries. Overall, the pharmaceutical industry continues to face lax enforcement of patent violations by third party companies. The council would furthermore like Egypt to adopt measures to protect data submitted to obtain marketing approval for pharmaceutical products.

The Egyptian government’s price control system references 36 countries and

determines the government’s pricing by identifying the lowest price out of all the countries and then reduces Egypt’s price by 10%. This type of price control system negatively impacts the pharmaceutical industry’s ability to develop and introduce innovative products to all markets, including Egypt. In addition, the market authorization process for new medicines is still lengthy despite the intention of various ministerial decisions to reduce the registration period.

Combating counterfeit pharmaceutical products has also been an on-going

problem for pharmaceutical companies that affect the integrity of medicine and consumer safety. In fact, several industries face issues of counterfeiting and other forms of illicit activity. Egypt’s Customs Authority has not been sufficiently effective in curbing the entry of such products into the market nor in interdicting illicit goods that are transiting Egypt, given that Egypt is increasingly becoming a strategic commercial corridor to the immediate region, Africa and Europe. In addition to a lack of enforcement, customs officials are not adequately empowered with the proper legal authority to prevent and interdict illicit goods in transit through Egypt.

Consumer Goods Sector

The consumer goods sector for health care, cosmetic, food and beverage, and personal care products also face problems from third party companies that create, produce, and market counterfeit products in the local market. These products are

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often sold on the black market at cheaper prices with no quality assurance. Some products sold on the black market have been reported to cause adverse health effects. Further protection and enforcement against counterfeits for public health and safety are required. In addition, the judicial system needs to more vigorously prosecute manufacturers of counterfeit products, rather than let cases drag out in the court system.

Several companies have identified the problem of illicit trafficking of

commercial goods affecting their brand products, including tobacco, spirits, luxury goods, textiles and apparel, and house-hold products. Smuggling not only impacts businesses, but also hampers national security and public health. Information Technology Industry

In the information technology industry, Egyptian law currently has insufficient disciplines for dealing with Internet piracy of IP-related products and services, which is a growing problem as Egyptian Internet penetration increases. Egypt does not aggressively enforce entertainment and business software IP rights. Better IP protection will help develop Egypt’s growing IT sector.

IP Recommendations Improved IPR protection will help promote Egypt’s goal of developing sectors such as information technology and consumer products and make Egypt more attractive as a regional hub for innovation. To address Egypt’s remaining challenges in the area of intellectual property rights, the U.S.-Egypt Business Council proposes the following: 1. The United States should continue to provide technical assistance to Egypt to

improve Egypt’s ability to maintain and update its IPR laws, to implement its obligations and to enforce IPR protection at the border and internally. Assistance should be provided until such time as Egypt is no longer on the Special 301 Watch List. In particular:

§ The United States could provide additional support to enhance Egypt’s

enforcement. The U.S. Commerce Department’s Commercial Law Development Program (CLDP) could sponsor a workshop to help train judges in the new Economic Courts in the adjudication of intellectual property cases. For example, in December 2010, the CLDP conducted a two-day training workshop at the Internal Trade Development Authority for trademark officers and board of appeals judges to provide an overview of the trademark system in the United States, and to address various topics, including the likelihood of confusion standard, distinctiveness of marks, and registration of trade dress.

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§ Training could be undertaken to ensure that there are specialized corps of prosecutors and judges to deal with intellectual property issues, as well as improved court procedures that diminish excessive documentation requirements.

2. The United States Patent and Trademark Office (USPTO) has an Intellectual

Property Rights Attaché Program in which officials are posted abroad to help promote high intellectual property rights standards and enforcement. Cairo in the past has served as the post for the Middle East and North Africa, but the position currently is vacant. We urge the U.S. government to fill this important position in Cairo as soon as possible.

3. Revisions to Egyptian law should be adopted to improve Egypt’s protection and

enforcement of intellectual property. In particular, we suggest the following:

§ Egypt should accede to and fully implement the World Intellectual Property Organization (WIPO) Copyright Treaty and WIPO Performances and Phonograms Treaty in order to provide needed protection in the digital age and Internet environment.

§ Egyptian law needs to provide explicit authority for Egyptian Customs Authority to confiscate goods in transit that violate intellectual property rights. Border Measures regulations, enforced in conjunction with Customs Laws, are unclear and subject to various interpretations. As a result, goods violating IPR (such as counterfeit goods) can find it easy to transit through Egypt. Moreover, even when IPR-violating goods are seized, Egyptian law provides that the goods may be auctioned without any determination of their authenticity. In short, counterfeit goods can re-enter the market. A more appropriate policy would be to destroy such goods.

§ The Egyptian Parliament should approve amendments to the Trade Name Law to provide additional trademark protection.

§ Customs should have ex-officio power to detain goods they suspect of infringing intellectual property rights and samples should be provided to trademark owners. Trademark owners should have a more active role in the detention and seizure process thus reducing burdens on customs.

§ A simplified procedure for the destruction of infringing intellectual property rights should be instituted.

§ Changing the destination or declared description of goods suspected of infringing intellectual property rights should not be allowed.

4. Intellectual property rights and franchising are inextricably linked, since the franchise generally depends on a strong brand/trademark for its value.

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Franchising has been an important mode of access to the Egyptian market for various restaurant chains, as well as other firms in areas such as automobile rentals, computer training, electronics, and hotels, among others. § As Egypt develops a new franchise law, it is important that the law ensure that

the rights of the brand/trademark owner are fully protected and that the franchise law is consistent with Egypt’s rights and obligations under its various international agreements, including the Paris Convention, the Trademark Law Treaty, the Madrid Agreement and the Madrid Protocol, the Nice Agreement, and the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

5. The Egyptian government should continue to make public health and safety a priority by reforming its health care industry. We recommend that the Egyptian government address the following:

§ Reform the government price control system of pharmaceuticals by reducing

the reference range to a smaller list of countries that have similar health care systems and similar levels of economic development. Lower prices in Egypt could lead to sequential launching of products creating a treatment gap for the medical community in Egypt. High prices continue to prevent access to the innovative treatments.

§ Further modernize the regulatory process for the registration of new products and reduce the processing time for new medicines.

§ Align Egypt’s regulatory standards with international and U.S. standards. § Provide full intellectual property protection through tightening the

implementation of current IPR laws and removing any obscurity related to implementation.

§ Implement a comprehensive program to combat the counterfeit problem in the pharmaceutical sector.

6. We further recommend that Egypt sign and ratify the Singapore Treaty on the Law of Trademarks and the Vienna Agreement Establishing an International Classification System of the Figurative Elements of Marks so as to extend its trademark protection regime.

TRANSPARENCY

The council urges the United States government to advocate Egypt to adopt a similar rulemaking procedures mechanism and standards for regulatory agencies as stipulated under the U.S. Administrative Procedures Act (APA), as well as Office of

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Management and Budget (OMB) guidance regarding cost-benefit analysis and regulatory impact assessments.4 Even though the TBT Agreement provides transparency safeguards regarding trade of goods that Egypt should already be following (and the council believes could be enhanced as mentioned above), a robust system of governmental transparency in all areas is necessary. The establishment of an Egyptian-style APA will offer the public a meaningful opportunity to participate in the adoption of regulations within the Egyptian government as well as set clear and consistent regulations. While the Egyptian civil law system generates rules and regulations through the legislature, the Egyptian Parliament should establish a transparent committee on administrative law that is responsive to public demands and holds open dialogue. A regulatory system with robust and open stakeholder engagement provides benefits for American business while also ensuring that regulations are promulgated in a manner to ensure maximum efficiency and demonstrating the new Egyptian government is acting in a manner that is fair and accountable. Additional measures to increase overall government transparency also need improvement. While the Egyptian government requires numerous permits and licenses for businesses to operate, the United States government should encourage the Egyptian government to further reduce multiplicity and the number of requirements on businesses. STANDARDS ALIGNMENT

Too often, Egypt accepts standards that are not voluntary, private sector-based or formed by a true consensus of interested stakeholders, much to the detriment of American companies. For instance, the Egyptian government accepts European automotive standards but does not accept American standards, despite American standards resulting in equal, if not greater, safety protection and fuel economy. Multiple sectors are affected by the divergence of Egyptian standards from American standards, including appliance and automotive component parts, food product regulations, marking and labeling requirements, among others. The council urges the United States to encourage Egyptian authorities to adopt or mutually recognize U.S. standards. Encouraging the standards alignment in foreign markets is something the European Union does quite effectively as its regulators work much closer with its commercial and trade counterparts within the European Commission to advance EU commercial interests. In addition, the council urges the United States government to send a representative to be stationed permanently at the U.S. embassy in Cairo to advocate for the use and adoption of the U.S. standards as well as conduct general outreach and promotion of the U.S. system of standard setting across sectors.

                                                                                                                         4 See generally EO 12866 and EO 13563

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MENA REGION

It is the council’s view that strengthening economic ties between the United States and MENA countries is a step-by-step approach. It is best launched by a focused effort to leverage the progress made with Egypt by locking in economic reforms within a lasting framework under a free trade agreement. Regional economic integration will not naturally precede strong bilateral trade relationships. Bilateral trade relationships must be nurtured first, always with the larger but historically much more difficult goal of significantly increasing intra-MENA trade. Egypt has the potential to serve as a solid centerpiece for trade in manufacturing, services, and cross border trade under the existing collection of regional trade and preference programs in which Egypt currently participates. The council recognizes that it is in the interests of Egypt, the MENA region, and the United States to advance economic opportunity in measurable terms. Not only will this require comprehensive trade policies, it will also require sound macroeconomic management, rational sector policies and industry regulation that encourage competition for a sound business environment to thrive.

As for trade policy, Egypt is a signatory to the following: Greater Arab Free

Trade Area (GAFTA), Common Market for Eastern and Sothern Africa (COMESA), Agadir Agreement, EU-Egypt Association Agreement, Egypt-Turkey FTA and others. The United States should consider working through existing regional trade agreements – namely GAFTA and possibly working directly through the Social and Economic Committee of the Arab League, which is housed in Cairo connecting the additional 18 member countries, including Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestinian Territories, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates and Yemen.

With over 400 million consumers, the MENA region presents vast and

untapped opportunities as a trading bloc for U.S. companies. The MENA region is comprised of 20 countries across North Africa, the Levant, and the Gulf Cooperation Countries. The region’s GDP as a whole reached $2.4 trillion at the start of 2011, making MENA a global powerhouse as the world’s ninth largest economy surpassing Canada. In 2010, U.S. exports of goods and services reached $68 billion. The World Bank’s Doing Business in the Arab World 2011 names the MENA region the second fastest reforming region in the previous year.

From a macroeconomic perspective, the region as a whole has been called one

of the fastest growing regions with enormous investment and export potential, yet market penetration and intra-regional trade has been minimal at best. Non-oil exports from MENA are significantly lower as a share of MENA’s GDP compared to other regional trading blocs, almost 1/3 of its potential. Only Jordan and Morocco have

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non-oil export levels close to what is expected as a comparison of their GDP – each has a free trade agreement with the United States; Algeria and Egypt are repeat underperformers.5 Further lack of regional integration is said to be due largely to restrictive trade regimes and protectionist trade and investment policies despite numerous regional trade agreements and preference programs already in place. Tariff barriers in the region are some of the highest in the world. Non-tariff barriers include lengthy processing requirements on customs, high transportation, logistics, and communications costs and other trade facilitation impediments.

The World Economic Forum’s Arab World Competitiveness Review 2010 found that a

lack of competitiveness in the region has caused MENA countries to miss out on the benefits of globalization. Failure to fully integrate, in part, has contributed to the fact that exports flows are directed towards Europe and are concentrated in several sectors. The report finds that countries in the MENA region need to improve on education, open their business environments, and liberalize government control of companies to become a competitive regional bloc.

American companies are buyers and sellers in the Middle East and North

Africa as well as investors in the region. Increased regional economic integration would benefit U.S. companies at large. It would also boost economic growth, increase trade, and create jobs in the Middle East and North Africa. Further integration under GAFTA would stimulate new consumer demand that American firms would seek to meet, provide new investment opportunities for U.S. companies, and increase ties between the region as a whole and the United States.

In 1997, GAFTA, also referred to as the Pan Arab Free Trade Area (PAFTA),

was established and as of 2005, all 18 countries exempted customs duties and charges between the trade bloc. GAFTA countries combined have a GDP of over $780 billion annually. GAFTA is the most far-reaching regional integration step to date, notably because it relies on the Arab League and the Gulf Cooperation Council and has removed tariffs and monetary, administrative and quantitative non-tariff barriers. GAFTA addresses agriculture trade liberalization and sets out rules of origin. Included is also trade related to services, technological cooperation, and intellectual property. The agreement signals the commitment of the countries in the Middle East and North Africa toward regional integration. However, more work needs to be done. Implementation and enforcement of barriers to trade lag behind. Intra-regional trade has been hampered by a lack of trade complementarity between the countries and the need to develop local manufacturing beyond oil and gas exports, which many Arab countries rely upon.

                                                                                                                         5 Bhattacharya, Rina and Wolde, Hirut, IMF Working Paper, Constraints on Trade in the MENA Region, February, 2010.

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Similar to the U.S.-Middle East Free Trade Area (U.S.-MEFTA) concept, the United States should consider entering into trade and investment discussions with GAFTA. With a more open flow of goods, services and capital, the MENA region can attract more U.S. investors, while local consumers and companies have access to a wider range of competitive services, products and financing.

With the European Union’s association agreements and work in the MENA

region, American companies risk being left behind. The U.S. Chamber’s member companies applaud the work that has been done to date, but would like the United States to take a step further to deepen regional integration and ultimately increase market penetration. RECOMMENDATIONS Regional Trade and Investment Conference in 2012

-­‐ We suggest that the U.S. government convene a conference hosting regional MENA governments, the U.S. government, business organizations, and private sector companies to discuss the best conditions for further regional integration and business growth.

-­‐ The conference should consider the optimum conditions for establishing an independent Secretary General for regional integration under GAFTA that could help spur institutional and private sector collaboration for this purpose.

-­‐ The conference should contain panels for discussion by topic and sector – health, industry, energy, intellectual property, investment, trade facilitation, etc.

-­‐ Submissions from governments and private sector should be considered in advance as a discussion platform.

-­‐ A draft plan, with actionable items, should be discussed at the conference on how to implement regional integration.

Conduct Annual Survey on Regional Integration

-­‐ We suggest that the U.S. government conduct an annual survey of companies that operate in the MENA region to determine progress on regional integration and further barriers to trade and investment.

*** The U.S.-Egypt Business Council and the U.S. Chamber of Commerce once

again thank USTR for this opportunity to provide information on the important topic of MENA trade and investment integration.

U.S. Chamber of Commerce1615 H Street, NW

Washington, DC 20062Telephone: 202-463-5596

Fax: 202-463-3114

www.usegyptcouncil.org